Bernstein analyst can't believe he has to debunk conspiracy theories: 'And yet, here we are...'
Nvidia Corp.'s revenue doubled while its cost of goods barely crept up, so there must be something fishy, right? A company is using their Nvidia graphics processing chips as collateral for billions in loans -- that doesn't sound right, does it?
As Nvidia $(NVDA)$ shares fell 3.1% to close at $470.61 on Wednesday, Bernstein analyst Stacy Rasgon must have been hearing from clients all day who were worried after reading the most recent conspiracy theory on why Nvidia's 222% year-to-date stock gain must somehow be fixed.
"Recently there have been a couple of Nvidia short theses circulating widely on social media," Rasgon wrote in a note titled "Please don't get your investment thesis from Twitter randos."
"They are, for the most part, puerile," he said, adding that clients keep asking about them, and whether or not they could be moving the stock. "Hence we (very grudgingly) write this note today."
Rasgon has an outperform rating on Nvidia's stock and a $675 price target. Of the 51 analysts who cover Nvidia, 47 have buy ratings, and four have hold ratings, with an average target price of $649.22, according to FactSet.
The first "thesis" Rasgon shot down was that while Nvidia's revenue more than doubled from a year ago, their cost of goods sold crept up only 7%, "hence something must be 'wrong.'" Nvidia's data-center sales topped Wall Street expectations by more than $2 billion, while the company's revenue forecast for the third quarter was more than $3 billion higher than expected.
"This is nonsense," Rasgon wrote. The analyst explained that Nvidia took $1.34 billion in charges that included about $1.22 billion in inventory reserves and that "ran through COGS in the year-ago quarter," when it appeared Nvidia was melting down.
Looking closer, Rasgon said that when those charges were excluded, COGS actually increased by about 70% in the second quarter from a year ago, which was "entirely normal" given the year-over-year strength in data-center sales.
The second "thesis" concerned GPU cloud vendor Coreweave Inc., which recently listed its Nvidia AI chips as collateral in financing $2.3 billion in debt led by Blackstone Inc. $(BX)$ and Magnetar Capital.
Since Nvidia is an investor in Coreweave, Rasgon said "internet innuendo has effectively implied Nvidia used this to stuff the channel (pointing to it as driving their data-center beat in the quarter) as well as accusing Nvidia of other nefarious intents given their investment in Coreweave."
"Beyond somewhat hilariously confusing 'Blackstone' with 'Blackrock' during the process, this is also nonsense," Rasgon wrote. "Nvidia did not need help from Coreweave (or anyone) to juice the quarter (their products are all on allocation), and the debt facility was announced Aug. 3 (after the quarter was completed) with the release suggesting deployment has likely not happened yet."
Rasgon noted that Nvidia not only invests in Coreweave but other AI startups like Hugging Face Inc., Activ Surgical Inc., AI21 Labs Ltd., Skydio Inc., and Superluminal Medicines Inc.
"And as companies like Coreweave build businesses based on Nvidia GPUs, it is in Nvidia's interest to see them succeed given their presence offers a counter to the threat of bigger [cloud service providers] developing their own internal AI offerings," Rasgon said.
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